Committee for Enterprise,
Trade and Investment
Wednesday 26 June 2002
MINUTES OF EVIDENCE
Open-Ended Investment Companies Bill:
Committee Stage
(NIA 10/01)
Members present:
Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr McClarty
Dr McDonnell
Dr O’Hagan
Mr Wells
Witnesses:
Mr M Bohill ) Department of Enterprise,
Ms J Bryans ) Trade and Investment
Mr J Johnston )
Ms C McGivern ) Assembly Legal Service
The Deputy Chairperson: My apologies for the delay. Unfortunately a neighbour of the Chairperson died suddenly last night, so that has caused a few problems. I welcome Mr Mike Bohill, Mr Jackie Johnston and Ms Joan Bryans from the Department of Enterprise, Trade and Investment. We also have Clare McGivern with us to provide advice to the Committee. Following your introduction on the Bill, we may have some questions.
Mr Bohill: Thank you. Members have a copy of the explanatory and financial memorandum outlining the purpose of the Bill, and I will not dwell too much upon it. The key point is that the Bill, although technical, is important for the financial investment sector in Northern Ireland. It will ensure that Northern Ireland investment firms have the same opportunities in relation to open-ended investment companies (OEICs) as their competitors in Great Britain, thus removing any potential disadvantages to the local investment sector.
The Bill largely replicates the relevant sections in the Financial Services and Markets Act 2000 and the Open-Ended Investment Companies Regulations 2001, but it is tailored to Northern Ireland requirements. The decision to register an OEIC will continue to be voluntary and based on commercial considerations. Although there are no OEICs registered in Northern Ireland, the Bill represents the Department’s commitment to keep the legal framework for businesses at the forefront of international best practice. The Bill will achieve that by giving the Northern Ireland investment sector the opportunity to take advantage of the extended range of the OEIC investment vehicle.
The start-up costs for OEICs are estimated at £1,200, and although the explanatory and financial memorandum states that annual recurring costs are £1,200, we have discovered through further discussions and enquiries with the Department of Trade and Industry that running costs are £600 a year. There will be no further Northern Ireland exchequer or staffing costs arising from the proposals.
The Deputy Chairperson: The explanatory and financial memorandum mentions the establishment of OEICs. Are they not already established in Northern Ireland?
Mr Bohill: Clause 1, as the memorandum states, creates the legal framework within which the Department may make Regulations relating to the establishment of OEICs. The Bill is enabling legislation. The Financial Services and Markets Act 2000 is limited to Great Britain. This Bill mirrors that Act and provides similar enabling provisions.
Ms McGivern: The explanatory and financial memorandum is potentially misleading. It states that clause 1 allows the Department to make "regulations relating to the establishment" of OEICs. The word "establishment" has been used when, in fact, clause 1 states:
"1. —(1) The Department may by regulations make provision for —
facilitating the carrying on of collective investment by means of open-ended investment companies;
(a) regulating such companies."
The final two parts of the first sentence in the commentary on clause 1 are correct. However, the word "establishment" is misleading. The Bill deals with a different aspect of OEICs. It is not broadly about establishment.
Mr Bohill: I agree. The Bill is about extending the range of OEICs available in Northern Ireland.
The Deputy Chairperson: Therefore the word "establishment" does not truly reflect what you want to achieve.
Mr Bohill: The word "establishment" relates to the extended range of OEICs.
Ms McGivern: The explanatory and financial memorandum would be clearer if that point were explained.
Mr Bohill: Yes.
The Deputy Chairperson: Could that be clarified?
Mr Bohill: Yes.
Mr Wells: This has been on the stocks for several weeks. Has there been a deluge of Northern Ireland- based companies pleading with the Department for an opportunity to establish the open-ended investment companies legislation, or is it going to sit there for years until someone comes along and asks to avail of it?
Mr Johnston: We have had no additional enquiries from local investment firms to set up OEICs in Northern Ireland. Once the Bill is passed, we shall make it known through the press and the professional bodies that the extended vehicle is available. At the moment, however, they seem to be content to operate on the basis of the UK-wide OEICs provision under the auspices of the Financial Services Authority.
Mr Wells: I am sure that having heard the news from the stock market this morning, the Department would advise people not to touch anything with a bargepole at the moment. A strong risk is attached to those investment vehicles.
Mr Johnston: That is the case with all vehicles of that type. The fact that we are extending the range of OEICs to include property funds, for example, might encourage the creation of a particular property fund OEIC in Northern Ireland. The range of OEICs available might increase interest if the Bill were to be passed.
The Deputy Chairperson: We will now carry out a detailed clause-by-clause scrutiny of the Bill. Members will have the opportunity to raise concerns or suggest amendments. Members should read the relevant clauses and paragraphs in the Bill along with the related commentary in the explanatory and financial memorandum.
The Bill has five clauses and no schedules. Each clause, and any subsection, must be considered in turn. The Committee will have two options: to agree that the Committee is content with the clause as drafted; or to agree that the Committee recommend to the Assembly that a clause be amended.
The purpose of the Bill is to ensure that local investment firms are provided with the opportunity to offer the same range of open-ended investment companies as their competitors in Great Britain. An open-ended investment company is one whose business is investment in securities such as shares of other companies. It issues shares to its investors and its capital may go up or down as shares are issued or cancelled. A fund manager manages the company’s investments, and the assets of, or assets owned, must be held by a depository. The role of the fund manager and depository must be authorised by the Financial Services Authority.
The current legislation in Northern Ireland provides only for the undertakings for collective investment in the transferable securities type of open-ended investment company. Through non-undertakings for collective investment in transferable securities, open-ended investment companies offer a wider range of investment schemes, including money market and property funds, and funds of funds.
The Bill will provide the framework for the extended range of this type of company together with Regulations that set out detailed provisions for the setting up, regulation and dissolution of an open-ended investment company. The Regulations will also set out the role of the Financial Services Authority.
Long title agreed to.
Clause 1 (Open-ended investment companies)
The Deputy Chairperson: Subsection 1 states that the Department may, by Regulations, make provisions for (a) facilitating the carrying on of collective investment by means of open-ended investment companies, and (b) regulating such companies.
Subsection 2 makes further provision for the setting up, registration, operation and dissolution of an open-ended investment company.
Subsections 3 to 7 provide a wide-ranging and non-exhaustive list of matters for which the Regulations may provide. Those include: imposing criminal liability; conferring functions on the authority, including rule-making powers; power to waive or modify rules; and power to modify or exclude any statute or rule of law. In particular, the Regulations may revoke the existing Regulations that govern open-ended investment companies.
Question, That the Committee is content with the clause, put and agreed to.
Clause 2 agreed to.
Clause 3 (Amendment of Article 665 of the Companies (Northern Ireland) Order 1986)
The Deputy Chairperson: The clause amends the Companies (Northern Ireland) Order 1986, so that the prohibition of the formation of companies with more than 20 members, other than under the Order, will not apply to open-ended investment companies incorporated by virtue of the Regulations made under clause 1.
Question, That the Committee is content with the clause, put and agreed to.
Clauses 4 and 5 agreed to.